The words on the way up, in plain English.

Cash & costs

13-week cash flow forecast

A week-by-week plan of the cash you expect to come in and go out over the next three months.

It starts from today's bank balance and rolls forward one week at a time, showing a closing balance for each week. Thirteen weeks is long enough to catch quarterly taxes and slow seasons, and short enough to stay accurate. Update it every Monday and act early on any week that falls below your cushion.

Example: A forecast shows a $35,000 opening balance dropping to $4,000 in week 9, when a quarterly tax payment and a slow month overlap.

Pricing & earnings

Add-backs

Costs added back to profit because a new owner would not have to pay them.

Add-backs are expenses in the seller's books that are personal, one-time or tied to the current owner. Common examples are the owner's salary, a family car, personal travel, or a one-off legal bill. Each add-back raises SDE, and so raises the price. Ask for receipts and only count the ones you can prove.

Example: A seller claims $40,000 of add-backs, but receipts support only $25,000, so the buyer uses $25,000.

Structure & financing

Asset saleAsset purchase

A deal in which the buyer picks specific assets, such as equipment, inventory and the name, instead of buying the company.

Past liabilities mostly stay with the seller's company, which is why buyers often prefer it. The price is split across the assets, and the buyer can usually depreciate the part allocated to equipment and amortize the part allocated to goodwill. Contracts, permits and the lease usually need to be assigned or signed again.

Example: A buyer pays $350,000 for a restaurant's equipment, recipes, name and lease, and leaves its old supplier debts with the seller.

Canada and US: Canada: buyer and seller may be able to file Form GST44 so GST/HST does not apply to the sale. US: both sides report the price allocation to the IRS on Form 8594.

Cash & costs

Break-even point

The level of sales at which revenue covers all costs, with zero profit or loss.

To find it, divide fixed costs by the gross margin percentage. Every sale above break-even adds profit, and every sale below it adds to the loss. Knowing it helps you judge a price change, a new hire or a slower month.

Example: A shop with $180,000 of yearly fixed costs and a 40% gross margin breaks even at $450,000 of sales.

Cash & costs

Burn rate

How fast a business is using up its cash when more goes out than comes in.

Burn rate is usually measured per month. Divide your cash balance by the monthly burn to get your runway, the number of months before the money runs out. It matters for new or seasonal businesses and for any month with a large one-off cost.

Example: A new studio with $60,000 in the bank and a $10,000 monthly burn has six months of runway.

Structure & financing

Business Development Bank of CanadaBDC

The federal Crown corporation that lends to and advises Canadian entrepreneurs, including for business purchases.

BDC offers business acquisition financing for buyers of existing Canadian businesses that generate revenue. It often works alongside a bank, the buyer's own cash and seller financing in the same deal. BDC also publishes free guides and a business glossary.

Example: A buyer funds a $900,000 purchase with $150,000 of their own money, a BDC loan and a vendor take-back.

Canada and US: Canada only. In the US, the SBA guarantees bank loans rather than lending directly.

Cash & costs

Cash flow

The money that actually moves into and out of the business's bank accounts over a period.

A business can show a profit and still run short of cash, for example when customers pay late or inventory builds up. Cash flow counts money when it lands or leaves, not when an invoice is issued. Lenders care about it because loan payments come out of cash.

Example: A contractor books $50,000 of profit in March but collects only $20,000 because two clients pay in May.

Customers & growth

Churn rate

The share of customers, or of recurring revenue, lost over a period.

Churn is usually measured monthly or yearly. Divide the customers lost during the period by the customers you had at the start. High churn means the business must keep replacing customers just to stand still, which raises the risk for a buyer.

Example: A cleaning company that starts the year with 200 contracts and loses 30 has a yearly churn rate of 15%.

Deal steps & documents

Closing

The day the money is paid and ownership passes from seller to buyer.

At closing, the signed documents and funds change hands, and loans and security are registered. Before that day, every condition in the purchase agreement must be met or waived, such as financing, the landlord's consent and final lien searches. Plan the first weeks of ownership before closing, not after.

Example: A purchase closes on June 30, and the buyer runs payroll for 12 staff the following Friday.

Taxes & regulators

Competition Act review

The Competition Bureau's review of mergers and acquisitions in Canada to check they do not harm competition.

Larger deals must be notified to the Competition Bureau before closing when both the parties and the deal pass size thresholds. For 2026 the transaction-size threshold is $93 million. Almost all small-business purchases fall well below that, but the Bureau can still review deals that are not notifiable.

Example: A $2 million purchase of a local plumbing company does not need pre-merger notification.

Canada and US: Canada only. The US equivalent for large deals is an HSR filing with the FTC and the Department of Justice.

Customers & growth

Customer acquisition costCAC

What it costs, on average, to win one new customer.

Add up marketing and sales spending for a period and divide by the number of new customers won in that period. CAC means most when you compare it with how much a customer is worth over time. If CAC keeps rising, growth is getting more expensive.

Example: A gym spends $9,000 on ads and promotions in a quarter and signs 60 new members, so its CAC is $150.

Customers & growth

Customer concentration

How much of the revenue depends on a few large customers.

If one customer brings in a large share of sales, losing that customer could sink the business. Buyers and lenders treat high concentration as a risk and may lower the price, ask for an earn-out or want proof the customer will stay. Look at revenue by customer for the top ten.

Example: A machine shop earns 45% of its $1.2 million revenue from one manufacturer.

Customers & growth

Customer lifetime valueLTV

The gross profit you expect from one customer over the whole time they stay.

A simple version is average yearly gross profit per customer multiplied by the average number of years customers stay. Comparing LTV with CAC shows whether winning customers pays off. Use gross profit, not revenue, or the figure will look better than it is.

Example: A member who brings $400 of gross profit a year and stays three years has an LTV of $1,200, eight times a $150 CAC.

Deal steps & documents

Data room

A shared folder, usually online, where the seller places the documents a buyer needs to review.

A data room keeps financial statements, tax returns, contracts, the lease and staff records in one place, sorted by area. Online versions track who opened what. For a small business it can be a well-organized shared drive with access limited to the buyer and their advisers.

Example: A seller loads 140 documents into a data room in eight folders, from "Financials" to "Equipment".

Pricing & earnings

Debt service coverage ratioDSCR

Cash available to pay debts divided by the loan payments due, both over the same year.

DSCR shows how comfortably a business can carry its loan payments, counting both interest and principal. A ratio of 1.0 means every dollar of available cash goes to the lender, with nothing left for a bad month. Many lenders look for about 1.25 or more, and each lender sets its own minimum and its own way of counting cash flow. For a business purchase, subtract a fair salary for yourself before you calculate it.

Example: Cash flow of $150,000 after a fair owner salary, against $100,000 of yearly loan payments, gives a DSCR of 1.5.

Deal steps & documents

Due diligence

The period after an offer is accepted in principle when the buyer checks that the business is what the seller said.

You test the financial records against tax returns and bank statements, read the contracts and the lease, search for liens, and meet the staff and key customers. Your accountant and lawyer handle the formal reviews and searches. Anything you cannot verify belongs in the purchase agreement as a written promise or becomes a reason to adjust the price.

Example: During a 60-day due diligence period, a buyer finds $20,000 of unpaid sales tax and asks for a price cut to match.

Deal steps & documents

Earn-out

Part of the price paid later, only if the business hits agreed targets after the sale.

An earn-out bridges a gap when the seller believes in growth the buyer cannot yet see. The targets might be revenue, gross profit or keeping certain customers. Define exactly how each target is measured and who controls the decisions that affect it, because vague earn-outs are a common source of disputes.

Example: A seller gets $400,000 at closing plus up to $100,000 over two years if yearly revenue stays above $1 million.

Pricing & earnings

Earnings before interest and taxesEBIT

Operating profit: what the business earns before paying interest and income taxes.

EBIT is revenue minus the cost of goods and all operating expenses, including depreciation and amortization. It shows what the operations earn before the cost of debt and before income tax. Because depreciation stays in, EBIT is lower than EBITDA for any business that owns equipment or vehicles.

Example: A landscaping company with EBITDA of $150,000 and $40,000 of depreciation on its trucks has EBIT of $110,000.

Pricing & earnings

Earnings before interest, taxes, depreciation and amortizationEBITDA

Profit before interest, income taxes, depreciation and amortization, a common measure of how much cash the operations produce.

EBITDA takes net income and adds back interest on debt, income taxes, depreciation and amortization. That strips out how the business is financed and how its assets are written down, so you can compare operating results across companies. Unlike SDE, it treats the owner's salary as a normal cost, which is why it suits businesses run by paid managers. It is not a recognized accounting measure, so always ask how a seller calculated it.

Example: Net income of $89,000 plus $9,000 of interest, $16,000 of taxes and $21,000 of depreciation gives EBITDA of $135,000.

Deal steps & documents

Escrow

Money or documents held by a neutral third party until agreed conditions are met.

In a business sale, a lawyer or escrow agent may hold the buyer's deposit or part of the price. The money is released to the seller on closing, or later if the agreement says so. Escrow protects both sides, because neither one controls the money while the conditions are pending.

Example: A buyer's $25,000 deposit sits in the lawyer's trust account in escrow until closing day.

Cash & costs

Fixed vs variable costs

Fixed costs stay the same whatever you sell; variable costs rise and fall with sales.

Rent, insurance and salaried staff are typical fixed costs. Materials, shipping and card fees are typical variable costs. A business with high fixed costs gains a lot from each extra sale and suffers quickly when sales drop, so knowing the mix helps you plan for a slow season.

Example: A food truck pays $3,000 a month in fixed costs and about $4 in ingredients and packaging for each $12 meal.

Structure & financing

Goodwill

The part of the price above the value of the identifiable assets, paid for reputation, customers and earning power.

When you pay $500,000 for a business whose equipment and inventory are worth $150,000, most of the difference is goodwill. It reflects the expectation that customers will keep coming back. Goodwill can disappear if the owner was the reason customers stayed, which is why handovers and non-competes matter.

Example: Of a $400,000 price, $120,000 goes to equipment, $40,000 to inventory and $240,000 to goodwill.

Canada and US: Canada: goodwill bought after 2016 goes in capital cost allowance class 14.1 at 5% a year on a declining balance. US: goodwill bought in an asset purchase is a section 197 intangible, amortized over 15 years.

Pricing & earnings

Gross margin

The share of each sales dollar left after paying the direct cost of what you sold.

Gross margin is revenue minus the cost of goods sold, shown as a percentage of revenue. It tells you how much each sale contributes toward rent, wages and profit. A falling gross margin often means rising supplier prices or too much discounting. Compare it by product line when the books allow it.

Example: A bike shop that sells $400,000 of goods that cost it $240,000 has a gross margin of 40%.

Taxes & regulators

GST/HST

Canada's federal goods and services tax, combined with provincial sales tax as HST in some provinces.

Businesses charge GST/HST on most sales, send it to the CRA and claim back the tax they paid on business costs as input tax credits. You generally must register once your taxable sales pass $30,000 in a single calendar quarter or over four calendar quarters in a row. The money you collect is held in trust for the government, so it is not yours to spend.

Example: A Toronto consultant who bills $10,000 plus 13% HST collects $11,300 and sets aside $1,300 for the CRA, minus input tax credits.

Canada and US: Canada only. Rates differ by province, and some provinces add a separate provincial sales tax or QST instead. The US has no federal sales tax; see sales tax nexus.

Deal steps & documents

Holdback

Part of the price kept back after closing to cover claims if the seller's promises turn out to be wrong.

A holdback is paid to the seller later, often after 12 to 24 months, minus any valid claims. It gives the buyer a practical way to collect on the indemnity without suing. The amount, the time and the kinds of claims it covers are all negotiated in the purchase agreement.

Example: On a $600,000 purchase, $60,000 is held back for 18 months to cover any tax bills from before closing.

Taxes & regulators

HSR filing

A US pre-merger notice to the FTC and the Department of Justice, required for large deals under the Hart-Scott-Rodino Act.

If a deal is large enough, both sides must file and wait before closing so the agencies can check for competition problems. The FTC adjusts the thresholds every year. For deals closing on or after February 17, 2026, the minimum size-of-transaction threshold is $133.9 million, so typical small-business purchases do not need a filing.

Example: A $3 million purchase of a regional HVAC company falls far below the HSR threshold.

Canada and US: US only. The Canadian equivalent is Competition Act pre-merger notification.

Deal steps & documents

Indemnity

A promise to pay the other side back for losses caused by specific problems.

In a business sale, the seller usually indemnifies the buyer for losses from false reps and warranties and from liabilities that arose before closing. The agreement sets limits, such as a cap on the total, a minimum claim size and a deadline to claim. Indemnities matter most in a share purchase, where past liabilities stay with the company.

Example: A $15,000 tax reassessment for the year before the sale is paid by the seller under the indemnity.

Deal steps & documents

Letter of intentLOI

A short document that sets out the main terms of a deal before the full purchase agreement is drafted.

An LOI covers the price, whether you are buying assets or shares, what is included, how you will pay, how long due diligence lasts and how long the seller stays to help. Most of it is non-binding. Confidentiality and exclusivity clauses usually do bind both sides, so the seller cannot shop your offer while you spend money checking the business.

Example: An LOI offers $450,000 for the assets of a cleaning company, with 60 days of due diligence and 90 days of seller training.

Structure & financing

Lien

A creditor's legal claim against an asset, which can let it seize the asset if a debt is not paid.

Lenders register liens against equipment, vehicles, inventory and receivables to secure loans. A lien can stay attached to an asset after it is sold, so a buyer could end up paying for equipment a lender can still claim. Your lawyer searches the public registries before closing and makes sure existing liens are paid off and discharged.

Example: A lien search shows a $45,000 equipment loan registered against the delivery van, which is paid off from the sale proceeds at closing.

Pricing & earnings

Multiple

The number you multiply yearly earnings by to get a price.

A multiple turns earnings into a price, as in "2.5 times SDE". Higher multiples go to businesses with steady, growing earnings that do not depend on the owner. Lower multiples reflect risk, such as one big customer or a short lease. There is no official table of multiples, so treat any figure as a starting point and test it against what a loan can carry.

Example: A business with SDE of $200,000 offered at a 2.5 multiple is asking $500,000.

Pricing & earnings

Net income

The profit left after every expense, including interest, depreciation and taxes. Also called net profit or the bottom line.

Net income is the last line of the income statement. Owners of small companies often keep it low on purpose by paying themselves a salary and running some personal costs through the business. That is why buyers rebuild the earnings with add-backs instead of relying on net income alone.

Example: A café with $500,000 of revenue and $470,000 of total expenses has net income of $30,000.

Deal steps & documents

Non-compete

The seller's promise not to start or join a competing business for a set time and area after the sale.

A non-compete protects the goodwill you are paying for. Courts look at whether the time, area and activities covered are reasonable, and rules vary by province and state. Sale-of-business non-competes are generally treated differently from employee non-competes, so ask your lawyer what applies to your deal.

Example: The seller of a pest-control company agrees not to compete within 50 km for three years.

Canada and US: Canada: Ontario's ban on employee non-competes has an exception for the sale of a business. US: rules are set mostly by each state, and some states restrict non-competes heavily outside a sale of a business.

Deal steps & documents

Non-disclosure agreementNDA

A contract in which you promise to keep the seller's information private. Also called a confidentiality agreement.

Sellers usually share a short summary of the business first and the real numbers only after you sign an NDA. It limits who you can show the information to and what you can use it for. Read it before signing, because some NDAs also stop you from hiring the seller's staff or contacting customers for a period.

Example: After signing an NDA, a buyer receives three years of financial statements for a $600,000 HVAC business.

Pricing & earnings

Owner's draw

Money an owner takes out of a sole proprietorship or partnership for personal use.

A draw moves money from the business to the owner. It is not a salary or a business expense, and it does not lower the business's taxable profit. In a corporation, owners are paid through salary or dividends instead. When you rebuild a seller's earnings, look at draws and salary together to see what the owner really took home.

Example: A sole proprietor who takes $5,000 a month in draws has taken $60,000 out of the business over the year.

Taxes & regulators

Payroll remittance

Sending the taxes and contributions withheld from employees' pay, plus the employer's share, to the government on schedule.

Employers deduct income tax and other contributions from each paycheque and remit them by set due dates. Withheld amounts are held in trust, and late or missing remittances bring penalties and interest. Unpaid remittances are a common hidden debt when you buy a business, so check them during due diligence.

Example: A café with eight staff withholds about $6,500 a month and must remit it by the CRA or IRS due date, not when cash allows.

Canada and US: Canada: source deductions cover income tax, CPP contributions and EI premiums, and directors can be held personally liable for unremitted amounts. US: federal income tax, Social Security and Medicare are deposited on a monthly or semiweekly schedule and reported on Form 941 each quarter.

Structure & financing

Personal guarantee

Your promise to repay a business debt from your own money if the business cannot.

Lenders and landlords often ask small-business owners to sign one, even when the borrower is a corporation. It means your personal savings and assets can be at risk. Read the limits carefully, since some guarantees are unlimited, and ask whether one can be capped or released over time.

Example: An owner signs a personal guarantee on a $300,000 term loan and a five-year lease.

Structure & financing

PPSA and PPSRPPSA / PPSR

Canada's provincial laws (PPSA) and registries (PPSR) for security interests in personal property such as equipment and inventory.

Each common-law province has a Personal Property Security Act and a registry where lenders record their claims. Searching the registry by the business's exact legal name shows registered liens. In Ontario the search runs through ServiceOntario. Quebec uses its own register under the Civil Code.

Example: An Ontario PPSR search lists two registrations against a café: one for an espresso machine lease and one for a bank's general security.

Canada and US: Canada only. The US equivalent is a UCC search with the secretary of state.

Deal steps & documents

Purchase agreement

The binding contract that sets out exactly what is being sold, for how much, and on what terms.

The purchase agreement replaces the LOI with full legal detail. It lists the assets or shares, the price and how it is paid, the seller's promises, the indemnities, any holdback or earn-out, the non-compete and the conditions that must be met before closing. A business lawyer should draft or review it.

Example: The purchase agreement for a $500,000 dental lab includes a $50,000 holdback for 12 months.

Pricing & earnings

Quality of earnings reviewQoE

An accountant's independent check of whether the seller's earnings figure holds up.

A quality of earnings review tests the add-backs, one-time items, revenue and cash behind the earnings a seller is using to set the price. It usually goes deeper than a standard review of the financial statements. Lenders sometimes require one for larger purchases, and buyers often use the findings to renegotiate.

Example: A review finds that $30,000 of claimed add-backs were normal running costs, which takes $75,000 off a price set at 2.5 times SDE.

Customers & growth

Recurring revenue

Revenue that repeats on a schedule, such as monthly contracts, memberships or subscriptions.

Recurring revenue is easier to forecast and usually earns a higher multiple than one-off sales. Check whether it is backed by signed contracts or only by habit, and how easily customers can cancel. Pair it with the churn rate to see how steady it really is.

Example: A managed IT firm has 80 clients paying $1,500 a month, or $1.44 million of recurring revenue a year.

Deal steps & documents

Representations and warrantiesReps and warranties

The seller's written statements of fact about the business, made in the purchase agreement.

Reps and warranties cover things like the accuracy of the financial statements, taxes being paid, no hidden lawsuits and clear title to the assets. If one turns out to be false, the buyer can claim under the indemnity. Anything the seller only told you in conversation should become a written rep.

Example: The seller warrants that all payroll remittances are paid to closing, and a $12,000 shortfall found later is claimed from the holdback.

Taxes & regulators

Sales tax nexus

A connection with a US state that is strong enough for that state to require you to collect its sales tax.

Nexus used to require a physical presence, such as a store or staff in the state. Since the Supreme Court's 2018 decision in South Dakota v. Wayfair, states can also require remote sellers to collect once their sales into the state pass a threshold. Every state with a sales tax now has such a rule, and the thresholds differ by state.

Example: An Ohio online store that sells $150,000 a year to customers in another state may need to register and collect that state's sales tax.

Canada and US: US only. When you buy a US business, check the sales and use tax filings for every state where it sells.

Structure & financing

SBA 7(a) loan

A US bank loan partly guaranteed by the Small Business Administration, often used to buy a business.

The SBA does not lend the money. It guarantees part of a loan made by an approved lender, which makes lenders more willing to finance a purchase. The program covers loans of up to $5 million, and changes of ownership are an eligible use. Owners of 20% or more of the borrower generally must personally guarantee the loan.

Example: A buyer finances a $1 million landscaping company with a 7(a) loan, a seller note and their own cash.

Canada and US: US only. The closest Canadian programs are BDC loans and the Canada Small Business Financing Program.

Pricing & earnings

Seller's discretionary earningsSDE

The total yearly benefit one full-time owner-operator takes from a business, used to price most small businesses.

SDE starts with net income and adds back the owner's own salary, interest, depreciation and amortization, income taxes, and personal or one-time costs paid by the business. It answers a simple question: how much money could one owner who runs the business take out of it each year? Brokers price many small businesses as a multiple of SDE. Larger companies with a hired management team are usually priced on EBITDA instead.

Example: A print shop with $60,000 of net income, a $90,000 owner salary and $30,000 of other add-backs has SDE of about $180,000.

Structure & financing

Share saleStock sale

A deal in which the buyer purchases the shares of the company that owns the business, with everything inside it.

The company stays the same legal entity, so contracts, permits and the lease usually stay in place, though some have change-of-control clauses. Past liabilities come with it, which makes reps, warranties and indemnities more important. Sellers often prefer share sales for tax reasons.

Example: A buyer purchases all the shares of a corporation that owns a print shop for $700,000 and inherits its tax history.

Canada and US: Canada: a seller of qualified small business corporation shares may be able to claim the lifetime capital gains exemption. US: called a stock sale, and the buyer generally cannot amortize goodwill bought this way.

Structure & financing

UCC search

A US search of the state records where lenders file claims (UCC financing statements) against a business's assets.

Under Article 9 of the Uniform Commercial Code, lenders file a financing statement to put the public on notice of their claim. Filings are generally made in the state where the debtor is located, which for most companies is the state where they are registered, not where they operate. A filing usually lapses after five years unless it is continued.

Example: A UCC search on a Texas LLC shows a 2024 filing by an equipment lender covering all its kitchen equipment.

Canada and US: US only. The Canadian equivalent is a provincial PPSA registry search.

Pricing & earnings

Valuation

An estimate of what a business is worth, and the method used to reach it.

Small businesses are usually valued with an earnings multiple, a look at the assets, or both. A business with weak earnings may be worth little more than its equipment and inventory. A formal valuation by a certified business valuator is common when partners split, for estates, or when a lender asks for one.

Example: A bakery valued at 2.5 times its $160,000 SDE comes to $400,000, while its equipment alone would sell for $70,000.

Structure & financing

Vendor take-backVTB

A loan from the seller to the buyer for part of the price, repaid over time. Called seller financing in the US.

With a vendor take-back, the seller accepts part of the price in instalments, usually with interest. It lowers the cash and bank debt the buyer needs and keeps the seller invested in a smooth handover. Banks often require the seller's loan to rank behind theirs.

Example: On a $500,000 sale, the seller takes back $100,000 repaid over five years at 6% interest.

Canada and US: US: SBA rules limit how seller notes can count toward the buyer's required equity in a 7(a) loan, so ask the lender early.

Structure & financing

Working capital

Current assets minus current liabilities: the short-term money a business needs to run day to day.

Working capital covers inventory, money customers owe and cash, minus bills due soon. In a purchase, agree on how much working capital comes with the business, or you may need to fund it yourself the week you take over. Many purchase agreements set a target and adjust the price if the real figure at closing is higher or lower.

Example: A wholesaler needs about $80,000 of inventory and receivables to operate, so the deal includes that amount at closing.